Revista de Economia, v. 40, n. 72, p. 134-175, 2019

‘’ in Latin America (2000-2015): Theory, Empirical Assessment and Alternatives

Ettore Gallo, Maria Cristina Barbieri Góes e Vinícius Diniz Moraes*

Abstract: The matter of the ‘original sin’, the inability to borrow abroad in domestic , came to the centre of the academic discussion after the dramatic episodes in Asia, Russia and Latin America. According to this international framework, this paper is an empirical analysis of ‘original sin’ for six Latin American countries based on the index (OSIN3) developed by Haussmann and Panizza (2003). This paper finds that the situation for some countries have been improving reflecting a reduction of the index. This fact could be related to recent economic policies related to an ‘abstinence’ rather than ‘redemption’, an attitude seen as a response to the crisis. Finally, the paper focuses on possible policy alternatives that could be adopted to overcome the ‘original sin’ phenomenon it includes North-South and South-South cooperation and a multilateral arrangement. However, such alternatives are limited to feasibility mainly due to the turbulent political and economic scenario in the region. Keywords: Original Sin; Currency mismatches; Debt; Latin America JEL Code: F34; F41; G15; O54

* Respectively, Department, The New School of Social Research, United States. E-mail: [email protected]; Scuola di Economia e Studi Aziendali, Università Roma Tre, Italy. E-mail: [email protected]; UFR de Sciences Économiques et de Gestion, Université Sorbonne Paris Cité, France. E-mail: [email protected]. DOI: http://dx.doi.org/10.5380/re.v40i72.62626

Gallo, Góes e Moraes 135

1. Introduction The matter of the ‘original sin’ came to the centre of the academic discussion after the dramatic episodes in Asia, Russia and Latin America (Mexican crisis in 1994, the Asian crisis in 1997, the Russian crisis in 1998, the Brazilian crisis in 1999, the Argentinean crisis in 2002), when the depreciation of local currency together with the denomination of debt in foreign currency – the dollar – resulted in currency, banking and . In this context, Eichengreen and Hausmann (1999) define ‘original sin’ as the “inability to borrow abroad in terms of domestic currency and to borrow domestically long-term”. That implies, as stated by Panizza (2006), that ‘original sin’ is a two-dimensional phenomenon, characterized by an international component (the local currency of countries affected by ‘original sin’ cannot be used to borrow abroad) and by a domestic component (the local currency is not used domestically for long-term borrowing).In this sense and in line with the literature, we acknowledge that the need of obtaining foreign exchange reserves is intrinsically related with internal productive structures of countries suffering from original sin. However, we decide to stress solely effects and strategies needed to deal with the external borrowing constraint in a short term analysis. Accordingly, we focus on the international component of ‘original sin’ and how it affected economic stability and borrowing conditions of Latin American countries. According to this international framework, our empirical analysis is based on the index (OSIN3) developed by Haussmann and Panizza (2003). The index will be calculated for , , Chile, , , ; later, we will analyse how the data fit the ‘original sin hypothesis’ throughout the time framework chosen (2000-2015). Our approach will, therefore, be based on a theoretical discussion of the phenomenon, by reviewing the academic literature, and a data analysis of ‘original sin’ in six relevant Latin American countries; in particular, we chose them because of their economic prominence in the area (Argentina and Brazil) and their different political peculiarities (Chile, Colombia, Mexico and Venezuela). Regarding the Latin American context, our first research goal is to analyse to what extent the Index (OSIN3) dynamics emphasize the ‘original sin’ and whether these dynamics shows signs of ‘redemption’ in the terms of Eichengreen, Hausmann and Panizza (2002). Secondly, we will focus on how the phenomenon

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 136

could be overcome through the alternatives presented in the literature, assessing them and taking into account the current Latin American scenario. We suppose that, in line with the literature, there might have been improvements in the country group analysed in terms of reduction of the index. Nevertheless, this reduction may have been mainly related to an ‘abstinence’ response to a crisis aftermath rather than ‘redemption’. The literature points some alternatives to reach ‘redemption’ including North-South and South-South cooperation and a multilateral arrangement. However, we argue that the feasibility of them is rather complex, especially considering the turbulent state of affairs, both economic and political in the developed and developing world. In Section 2, we deal with ‘original sin’ from a theoretical perspective, reviewing the effects on economic stability and analysing possible causes underlying the phenomenon. In Section 3, we deal with an empirical exercise, analysing a group of Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico and Venezuela (2000-2015). In the fourth section, we will present the alternatives able to overcome the phenomenon discussed and assess them under a critical perspective. Finally, we will conclude, summarizing our findings.

2. Theoretical background: ‘Original Sin’ 2.1 What is ‘Original Sin’? As originally defined in Eichengreen and Hausmann (1999), ‘original sin’ is the “inability to borrow abroad in terms of domestic currency and to borrow domestically long-term”. That implies, as stated by Panizza (2006), that ‘original sin’ is a two-dimensional phenomenon, characterized by: - an international component: the local currency of countries affected by original sin cannot be used to borrow abroad. As a consequence, foreign debt will be mainly denominated in foreign currency, generating currency mismatches for countries that are net debtor; - a domestic component: the local currency is not used domestically for long-term borrowing (i.e., local private borrowers prefer to denominate their liabilities in more stable in order to hedge the risk of currency

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 137

depreciation). Consequently, maturities in domestic currency can be only either of short or medium term. Eichengreen, Hausmann and Panizza (2002) demonstrated as the ‘original sin’ is a widespread phenomenon, that affects “almost all countries aside from the issuers of the 5 major currencies – the US dollar, the euro, the yen, the pound sterling and the Swiss franc”2. The original sin hypothesis was first developed in order to explain the problems that most developing countries face in borrowing in international capital markets (ICMs henceforth). Therefore, the focus on (the international component of original sin) tries to describe the distortions that affect the flows of capital from capital-rich advanced countries to capital-poor developing countries (EICHENGREEN; HAUSMANN; PANIZZA, 2007)3. As a tool to explain development problems and dependence relations, the theory of international original sin shows as the deficiencies in borrowing in ICMs undermine the possibility for developing countries to stabilize the domestic economy when faced with shocks.

2.2 ‘Internacional Original Sin’ as a threat to economic stability The of countries suffering from original sin will be characterized by liabilities mainly denominated in foreign currency. If the country is a net debtor, it will then face a currency mismatch on the balance sheet; in this case, movements in the real will generate wealth effects that may lead to higher volatility of output and capital flows, lower credit ratings and less effective monetary policies (EICHENGREEN; HAUSMANN; PANIZZA, 2002). All these factors undermine the domestic economic stability of countries affected by original sin, thus posing a threat to and development. As summarized in Fritz and Metzger (2006), the relation between ‘original sin’ and

2 Nowadays, the international monetary system is a “non-order” (BIBOW, 2008) characterized by a declining importance of British Pound (in particular after Brexit), as well as of Swiss Franc and Japanese Yen. While China’s renminbi has officially become a reserve currency (joining the IMF’s special drawing rights basket the 1 October 2016), US dollar is losing its unopposed hegemony in the international monetary system. If China will proceed on the path of capital account liberalization, a tripartite World scenario is likely to take shape, where reserves will be denominated into three main currencies: US dollar, Euro and Renminbi. Further discussion can be found in Bergstern (2014), Campanella (2014) and Kruger (2016). 3 Critical remarks about the conventional idea that capital flows from advanced to developing countries are provided by the famous “Lucas Paradox (LUCAS, 1990) and the allocation puzzle (GOURINCHAS JEANNE, 2013).

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 138

increasing economic volatility is due to three main reasons, namely currency mismatch, restricted lender-of-last-resort function and costs of original sin in terms of output reduction and uncertainty. First and foremost, the currency mismatch implies that any devaluation of the domestic currency would cause an increase in the real value of foreign debt stock, making more difficult its service. In this scenario, negative expectations on future repayments would create feedbacks resulting in capital flights, thus generating a spiral of worsening expectations and new capital flights. In other words, the capital outflows would behave in a pro-cyclical way, constituting a “loose cannon” for monetary authorities and their space to react. According to Panizza (2006), there are two ways to avoid the mismatches: i. Preventing foreign borrowing (both public and private); in other words, a country can overcome original sin following the extreme decision not to accumulate foreign debt4. ii. Accumulating foreign reserves matching the foreign debt. This solution seems to be the preferred for most countries suffering from original sin: Eichengreen, Hausmann and Panizza (2003a) demonstrated indeed that these countries tend to accumulate more foreign reserves than countries not affected by the phenomenon. Nevertheless, Panizza argues that both measures are costly. On the one hand, in situations of financial autarky countries are unable to overcome or to alleviate shocks through international borrowing; in other words, abdicating or preventing foreign borrowing would mean abdicating additional investment finance and consumption smoothing through international financial integration. On the other hand, an increase in the accumulation of foreign reserves would imply an increasing negative spread between lower yield on reserves and the opportunity costs of funds5. This has been exactly the case in the recent years (especially from

4 As stated by Eichengreen, Hausmann and Panizza (2003a, p. 2): “A financially autarchic country will have no currency mismatch because it has no external debt, even though it still suffers from original sin as we define it”. 5 In this regard it is important to highlight the emergence of a quasi-fiscal deficit. For instance, let us consider the case of Brazil. Since the accumulation of foreign reserves is performed through open market operations, rising bonds yields (attached to the Selic) are required in order to make government bonds accepted in the markets. In doing so, the government is committed to pay a high interest on bonds in order to obtain foreign reserves that it then holds on US American bonds with a lower yield. The spread between the yields paid on national short-term bonds and on the bonds in which the reserves are held creates what is called quasi-fiscal deficit.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 139

the beginning of the 2000’s until the outbreak of the financial crisis) when the countries adopted such measures as a response to the turbulence of the 1990’s. Second, the function of “lender-of-last-resort” would be restricted. Considering the case of banks having liabilities in foreign currency, the Central Bank cannot supply liquidity to the domestic financial sector, since the country does not issue the currency that the debt is denominated in. In this case, the higher the ‘original sin’, the greater the liquidity risk that the financial sector is exposed to. Third, the short and long run costs of the ‘original sin’. In the short run the costs of the ‘original sin’ could be related to the costs of the currency mismatch and in the long run, it would be creating both uncertainty and reduction of output as feedback of the volatility itself. In Section 4, we discuss more in detail what are possible solutions to stabilize Latin American economies affected by ‘international original sin’.

2.3 At the roof of ‘Original Sin’: main causes As argued in Eichengreen, Hausmann and Panizza (2003b) – and schematized by Panizza (2006) in the Table 1 reproduced here – there are six main causes that can explain the existence of ‘original sin’: economic development and institutional quality6, lack of monetary credibility, weak fiscal position, links, political economy and international causes linked with country size. Eichengreen et al. (2003b) conducted a multiple regression analysis to evaluate the correlation between these six explanatory variables and three different independent variables, namely three different indicators of original sin; in this paragraph, we focus on the significance of each determinant in respect of OSIN3, the measure that best indicates the international component of ‘original sin’7.

6 The most common indicator to measure economic development is GDP per capita. However, the choice of the indicator in not uncontroversial. Accordingly, an early critique of the idea that economic development can be expressed in terms of GDP per capita can be found in Sen (1988). More generally, as shown by the literature on original sin, institutions matter. In this sense, Panizza (2006, p. 31) stresses that “original sin is merely miner’s canary, signalling the presence of weak institutions and low level of development”. In this sense, an alternative measure of institutional weakness for countries suffering from original sin could be the five-dimensions Institutional Quality Index (IQI) proposed by Nifo and Vecchione (2015), encompassing regulatory quality, government effectiveness, rule of law, corruption, voice and accountability. 7 We will come back on this way to measure ‘original sin’ in Section 3.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 140

Contrary to what might be expected, the analysis showed that there is no significant correlation between ‘original sin’ and the level of economic development; the explanatory variable, expressed in log of per capita GDP, results slightly significant by dropping the regional dummies in the regression, but the result is not robust when we try to make inference on the correlation between original sin and economic development within country groups. The absence of a robust correlation between ‘original sin’ and the level of development implies that other determinants linked with specific countries characteristics are also unlikely to explain the phenomenon; the regression analysis confirms this intuition, demonstrating a weak or absent correlation between OSIN3 and trade links, characteristics of the domestic financial system, monetary credibility and fiscal policy-making. These results are of crucial importance because they contradict the common idea according to which inabilities and difficulties to borrow in ICMs of developing countries are a result of bad policies; in other words, credible monetary and fiscal policies cannot overcome a problem that is linked more closely with international causes.

Table 1 – Theories of Original Sin and their empirical relevance Explanation Link with original sin Empirical relevance GDP per capita and Economic Original sin is merely the miner’s canary, institutional quality can development signalling the presence of weak explain differences in and institutions and low level of economic original sin across country institutional development. groups but not within quality country groups. Borrowers prefer to denominate their Original sin is weakly obligations in dollars and go bankrupt in correlated with past the event of large depreciation, rather but this weak than borrow in pesos and go bankrupt correlation is due to the because of high-interest rates. Foreign presence of few high Lack of lenders take account of the fact that the inflation countries. At best, monetary government has less of an incentive to one can say that having credibility protect their property rights and may credible monetary policies choose to inflate away their claims if they is a necessary but not denominate them in a unit that they can sufficient condition for manipulate and hence they lend only in redemption from original foreign currency. sin. continued on next page

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 141

Table 1 – Theories of Original Sin and their empirical relevance continued A government that has weak fiscal accounts will have an incentive to debase the currency in order to erode the real No statistically significant Weak fiscal value of its obligations. The solution is to correlation between fiscal position index the debt to some real price or to ratios and original sin. issue short-term debt so as to increase the cost of eroding the debt with inflation. Countries that trade heavily with their creditors have an incentive to meet their No statistically significant contractual obligations because failing to Trade links correlation between trade do so will provoke a commercial openness and original sin. retaliation or, at the minimum, interrupt the supply of trade credits. If foreigners are the main holders of public and private , then there is No statistically significant likely to be a larger domestic political correlation between the Political constituency in favour of weakening the size of the domestic economy value of their claims and foreign financial system and creditors will be reluctant to lend in local original sin. currency unless protected by a large constituency of local savers. In a world with transaction costs, the optimal portfolio will have a finite There is a strong and robust International number of currencies. These few negative correlation causes currencies are the ones that offer better between country size and opportunities for diversification, i.e. the original sin. currencies of large countries. Source: Panizza (2006).

The authors demonstrated that the only significant variable is the country size: regression analysis shows indeed a strong negative correlation between this variable and original sin, both if we control for single countries and for country groups. As stated in the paper, “ability to borrow abroad in one’s own currency seems to be heavily concentrated among large countries” (Eichengreen et al. 2003b: 5). Three relevant dimensions of country size are taken into account in the respective variable (SIZE) in the regression model: log of total GDP, log of total domestic credit valued in US dollars and log of total trade. A possible explanation of the robust correlation between country size and original sin can be found focusing on the role played by economies of scale or network externalities in shaping the structure of international finance. Furthermore, these findings suggest

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 142

that the “redemption” from original sin can only be regional or international, aiming to a modification of the structure of the international monetary and financial system. This point will be crucial in the discussion of possible alternatives for Latin America in Section 4, after having evaluated the dimension of the phenomenon in the area.

2.4 The ‘Original Sin hypothesis’ in Latin America Latin American markets, particularly since late 1980’s, were subjected to a great influx of capital – so-called money chasing yield – motivated by low growth and low-interest rates in developed countries (external perspective) and by the implementation of political reforms inspired by the Washington Consensus (domestic perspective). Despite this good behaviour and the adoption of IMF recommendation, Latin American countries have been strongly hit by the reversion movement of the capital flows. Subject to the condition of ‘original sin’, the economy of these countries has faced extreme volatility of output and capital flows. A first answer to ‘original sin’ in Latin American countries during last decades was to abandon the national currency, adopting the currency in which debt is denominated (i.e. dollarization); that is still the case of countries like Ecuador, El Salvador and Argentina. As highlighted by Fritz and Metzger, when the option is the unilateral dollarization, the function of lender of last resort simply disappears and all debt is transformed into foreign currency. An alternative to dollarization – discussed in Section 4 – is monetary cooperation in form of an Optimal Currency Area (OCA)8. Facing such a big constraint to stabilization and, in its turn, development, in next sections our main aim is to ask the question of whether, after the turbulence of the 1990s, Latin American countries have reached any kind of ‘redemption to original sin’ (Hausmann and Panizza 2011). In Section 3, our empirical analysis will be based on the index OSIN3, as developed by Haussmann and Panizza (2003), that focuses on the international component of the original sin, as pointed

8 The difference between the two alternatives is highlighted by Cardim de Carvalho (2006, p. 104): “Dollarization, by contrast to the creation of an OCA, is the unilateral acceptance of the US dollar as the national currency by another country. It is not really monetary unification, since the rules of the game as to issuance of money, seigniorage gains, lender-of-last-resort facilities, etc., do not change with dollarization, since the United States does not in fact accept any responsibility for the decisions of other countries.”

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 143

out in Panizza (2006). The index will be calculated for the following countries: Argentina, Brazil, Chile, Colombia, Mexico, Venezuela; later on, we will analyse how the data behave throughout the time framework chosen.

3. Empirical assessment on ‘Original Sin’ in Latin America 3.1 Methodology and measures of ‘Original Sin’ As commented above, Eichengreen, Hausmann and Panizza (2002) created some indicators in order to investigate whatever a country is affected by ‘original sin’ or not. The authors present a vast literature about this topic, including several other indexes and forms of calculations and interpretations of ‘original sin’. For sake of simplicity, we opted to choose what is known in the literature as the best index for ‘original sin’. Additionally, we have chosen just to analyse the international side of ‘original sin’. Thus, the authors start by the indicator below:

퐼푁퐷퐸푋퐵 =1− (1)

INDEXBi is composed by one minus the ratio between all securities issued in currency i, no matter the nationality of the issuer, and all securities issued by country i, regardless of the currency issued. The literature states the advantages of using IDENXBi as an indicator to measure ‘original sin’ because it is capable to incorporate the possibility of hedging currency exposure via the market. The drawback of INDEXBi is that it can generate negative values, which means the total amount of securities in currency i is greater than the amount of total securities issued by country i. In order to solve this problem, a range limit is established, setting the index variation from zero to one:

푂푆퐼푁3 = max 1− ,0 (2)

OSIN3i becomes the best indicator according to the literature for two reasons. First, it captures the possibility of hedging exchange risks, as commented above. Second, it provides an aggregate and comparable measure of currency mismatches (EICHENGREEN; HAUSSMAN; PANIZZA, 2002; HAUSSMAN; PANIZZA, 2003; HAUSSMAN; PANIZZA, 2011).

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 144

When the index is equal to one, it indicates the country i doesn’t have any outstanding debt in currency i; therefore, this country is affected by ‘original sin’. In contrast, when the value of the indicator is zero, the country only has debts issued in its own currency, so there is no ‘original sin’.

3.2 Empirical evidence

In order to calculate OSIN3i, we collected data from the Bank of International Settlements (BIS). The period and the countries were chosen based on data consistency and availability (2000-2015). The database provides quarterly data, but as we are interested in annual analysis, the fourth quarter was used as the yearly value9. For the nominator, we took from BIS the total amount of outstanding debt in currency i in the international market. For the denominator, it was taken the total amount of debt securities issued by the nationals I denominated in all currencies. In Table1, we have a summary of our findings. Also, we plot the index in Figure 1. Due to formatting purposes, the vertical axis starts on ‘0.5’, but it is important to remember the OSIN3 index can vary between 0 and 1.

Table 2 – ‘Original Sin’ index for Latin American countries (OSIN3I) Original Sin Index for Latin American Countries (OSIN3i) - Argentina Brazil Chile Colombia Mexico Venezuela Mean 2000 0.973 1.000 0.930 1.000 0.997 1.000 0.983 2001 0.972 1.000 0.953 1.000 0.997 1.000 0.987 2002 0.992 1.000 0.967 0.994 0.996 1.000 0.991 2003 0.991 1.000 0.991 0.994 0.998 1.000 0.995 2004 0.992 0.996 0.991 0.963 0.991 1.000 0.989 2005 0.991 0.947 0.993 0.906 0.953 0.991 0.963 2006 0.987 0.902 0.977 0.873 0.871 0.956 0.928 2007 0.985 0.798 0.944 0.805 0.764 0.926 0.870 2008 0.986 0.852 0.948 0.799 0.769 0.932 0.881 2009 0.985 0.827 0.959 0.819 0.823 0.952 0.894 2010 0.988 0.798 0.903 0.790 0.810 0.989 0.880 2011 0.991 0.775 0.875 0.775 0.835 0.995 0.874 2012 0.994 0.818 0.898 0.759 0.838 0.996 0.884 2013 0.996 0.837 0.932 0.800 0.811 0.997 0.895 2014 0.997 0.860 0.956 0.833 0.840 0.997 0.914 2015 0.994 0.897 0.966 0.904 0.872 0.997 0.938 Mean 0.988 0.894 0.949 0.876 0.885 0.983 Source: Authors’ calculation based on BIS database.

9 In the appendix, all data are available for consultation.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 145

Figure 1 – OSIN3 for Latin American countries (2000-2015)

Source: Authors’ compilation based on BIS database.

Our findings explicitly show that all the countries analysed – although in different ways – are trapped in the ‘original sin’ condition. The average OSIN3 result for the region in 2015 is 0.990, clearly indicating the presence of ‘original sin’. More important, it is not only a current situation, but also a historical situation, since 2000 in our findings and much earlier (HAUSSMAN; PANIZZA, 2003). Interestingly, Mexico shows a better scenario in 2007 and 2008 (0.764 and 0.769 respectively), but it is followed by increases in the ‘original sin’ index. The same happens to Brazil and Colombia in 2011 (0.775 for both). These three countries show signs of “redemption” (Brazil 2007-2013; Colombia 2007-2013; and Mexico 2007-2014); in other words, the respective index result is lower or equal to 0.85 (HAUSMANN, 2010). Although, the “redemption” signs are reversed after the 2008 crisis, indicating it was more due to “abstinence” than a proper “redemption”. When we take a closer look at each country’s index evolution, it becomes clearer how the index felt since 2001 for the majority of the cases. Only Argentina and Venezuela present higher levels of ‘original sin’ through the whole period of analysis. As said before, Brazil, Colombia and Mexico could reach better levels of ‘original sin’ by 2006, but in all three cases, this scenario was reverted to what looks like a new convergence of the index in high levels. The reduction of the level of the index in the countries analysed (except for Argentina) could be explained by movements towards the reduction of ‘currency

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 146

mismatches’, both for the accumulation of foreign exchange reserves matching their foreign debt and for the abstinence from acquiring and accumulating foreign debt (public and private). Ocampo (2009) shows how Latin American countries tried to strengthen their external balance sheet from adverse shocks by building up reserves and lowering its levels of debt securities. Brazil and Colombia, for example, went from having 18.1% and 78.8% of reserves as a percentage of liabilities in 2001 to 35.4% and 114.6% respectively. Furthermore, these two countries lowered significantly their liabilities to GDP ratio in their external balance sheets (34.9% to 28.9% for Brazil; 13.8% to 0.9% for Colombia). Both these actors heavily impacted on the OSIN3 index, after all, these countries showed the lowest level of ‘original sin’ according to our data. This argument reinforces the idea of “abstinence” rather than “redemption”, as said before. Also, Liberato, Holland and Vieira (2012) state this downward trend to the OSIN3 index might be due to higher levels of liquidity after the 2001 crisis in the U.S. The authors explain the phenomena relating it to new financial instruments created in response to the low levels of interest rates, both in the U.S. and globally. This scenario enabled emerging countries to issue debt in their own currencies in the international market, which moves through the logic of “money chasing yield”. Looking deeply at Argentina, for being the most extreme case in our analysis, Ocampo (2009) also shows how the reverse situation contributed to a stagnation of the Argentinian index. Its liabilities to GDP ratio increased from - 0.3% to 29% (2001-2007). The Argentinean case, in particular, due to the crisis that has hit the country in 2001-2002 (the exact period when the liabilities to GDP ratio presented the biggest increase: from -0.3% in 2001, 19.8% 2002 and 20.1% in 2003). The crisis in Argentina ended up being more severe than the ones in Mexico (1994) and Brazil (1999), developing into banking, financial and , which is associated in the literature (Prates 2002) to the strategy of stabilization adopted there. The Convertibility Law of 1991 established a fixed exchange rate regime with currency convertibility (i.e. a currency board), which authorized monetary and financial contracts in any foreign currency. The capital flows were in great part deposits of non-residents at local banks, which, in their turn, provided funding for the expansion of and also implied an increase of foreign exchange reserves and bank reserves. The capital flows management strategy

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 147

adopted was the non-sterilizing intervention, which resulted - according to Prates - in a high degree of receptivity of the economy to these flows. This framework culminated in a credit expansion (with the key role of the “argendollars”) that was backed up by the demand of firms and households. All these movements were not followed by a recovery of the stabilization of the Argentinean peso, but it rather deepened the dollarization, which has been even more encouraged in 1995 (after the Mexican crisis – the “Tequila effect”) and 1997, 1998, 1999 (after the Asian, Russian and Brazilian crises). Having to raise the interest rates and being hit by a reversal movement of the flows, Argentina faced the contraction of domestic liquidity, directly convertible into dollars, which resulted in a banking crisis. This development pointed out the lack of a lender-of-last-resort of the strong currency, exactly as described by Fritz and Metzger (2006) when a country unilaterally adopts a foreign currency. What postponed the collapse of the model was the fiscal imbalance through the external indebtedness of the public sector (which impacts the index). Different than in Brazil, the public debt was not related to the sterilization operations nor to the dollarization of public debt, as in Mexico. In order to look at the region as a whole, it was taken the simple mean of our calculation of OSIN3 and put into a graph. We can see how the index developed throughout time. The objective of this exercise is to compare our findings with Haussman and Panizza (2011) and check for new trends in the updated data. We notice in Figure 2 that, prior to the crisis of 2008, countries were able to issue more debt in their own currency, making the index value, therefore, smaller. However, after the crisis this tendency is reverted, implicating in a higher proportion of debts being issued in foreign currency; on average, this has led to higher values of OSIN3. These results are similar to those presented by Haussman and Panizza (2011) and Liberato, Holland and Vieira (2012).

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 148

Figure 2 – OSIN3 average for Latin American region (2000-2015)

OSIN3 average for Latin American Region (2000-2015) 1 0,95 0,9 0,85 0,8 0,75

OSIN3 0,7 OSIN3 0,65 0,6 0,55 0,5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Authors’ compilation based on BIS database.

As a third exercise, we are interested in understanding the composition of debts securities in those countries. First, we divided the outstanding debt amount into two ones, denominated in domestic currency and denominated in foreign currency on average throughout our timeframe. As result, we can see that all analysed countries issue their respective debts mainly in foreign currency. In Figure 3 we can see that Argentina, Chile and Venezuela have an extreme scenario, with 99% of their securities in foreign currency, on average. Brazil, Colombia and Mexico present a slightly better scenario, issuing 95%, 91% and 89% of their respective debts in foreign currency. The result is shown in the graph below:

Figure 3 – Composition of debt for Latin American countries (average between 2000-2015)

Source: Authors’ compilation based on BIS database.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 149

In order to see more in-depth the composition of debt securities, we now want to investigate in which currencies these liabilities are denominated. For that, we took the outstanding amount of debts issued by country i and decomposed into three parts. The first is debt securities in U.S. dollars, the second debt in Euro and the third would be the residual (the difference between total debt and debt denominated in U.S dollar and Euro) representing debt securities issued in other currencies, including domestic. The reason for not showing a higher level of disaggregation in our data is due to the lack of information provided by our database. Just as the exercise above, it was taken the average composition between 2000 and 2015.

Figure 4 – Debt decomposition by currencies

Source: Authors’ compilation based on BIS database.

Both Figures 3 and 4 reaffirm our first finding, whereby Latin American countries mostly issue their debts in foreign currency, being, therefore, affected by ‘original sin’. It is visually clear how the main countries of Latin America are deeply dependent on debt issued either in euros or in U.S. Furthermore, it is important to emphasize Argentina being a singularity by the high percentage of its debts issued in euros (39%), compared to other countries investigated. In addition, Venezuela also represents an extreme scenario with 93% of its debts securities in international markets being issued in U.S. dollars. It clearly emphasizes dollar dependence and ‘original sin’, representing harmful effects to the economy.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 150

Considering the fact that the Latin American countries are far from reaching ‘redemption’ and that the falling trend of the OSIN3 in the period of 2000-2008 in the majority of countries analysed has already been partly reverted, in the next section we investigate possible alternatives for ‘redemption’.

4. Is there a way to halt ‘Original Sin’? 4.1 Unilateral strategy Before presenting the alternatives proposed on the literature concerning the ‘redemption’ towards ‘original sin’, it is important to point out, once more, that the strategy adopted in most of countries has been the unilateral approach. This was especially true in Latin American countries, including the ones analysed in the empirical Section10 through the channel of accumulation of foreign reserves, which implies in some costs11on the one hand, but, on the other, it functions as a safeguard to the currency mismatch. This unilateral strategy has been taken as a response to the lesson learned during the crises in Asia, Russia and Latin America and has, indeed, functioned in matters of reducing the exposure of the emerging market economies (in this case, the Latin American ones) in the course of the crisis of 2008. Nonetheless, this unilateral strategy is reversible and is rather a sign of ‘abstinence’ than ‘redemption’. We will expose in this chapter the alternatives that could answer the question of what could bring ‘redemption’ to the ‘original sin’ and in the end we will evaluate the alternatives presented having the global and regional political and economic scenarios as a background.

4.2 Bonds denominated in a basket of emerging market currencies Panizza (2006) argues that one possible ‘redemption’ to the ‘original sin’ would be, as proposed in Eichengreen and Hausmann (2003), an international financial institution creating “markets for local currency by issuing bonds denominated in a basket of different emerging market currencies”. According to Panizza (2006), the international initiative would work as a hedge (swap for their currency obligation) for emerging market countries. Furthermore,

10 The unilateral strategy and respective reduction of the index is discussed on Section 3.2, being related to accumulation of foreign exchange reserves matching the foreign debt and to the abstinence from acquiring and accumulating foreign debt (public and private). 11 The costs of the accumulation of foreign reserves matching foreign debt are discussed in Section 2.2.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 151

this strategy would be in line with the finds exposed in Eichengreen, Hausmann and Panizza (2002), namely the fact that the issuers of bonds in exotic currencies are mostly non-residents (due to the worthiness given by the market to bonds that separate currency and credit risk). In more practical terms, Eichengreen et. al (2002) argue that the issuance of the bonds should be done in four main steps. The first step would be the development of an appropriate index. According to the authors, this step would require the “creation of a unit of account that would include a well-diversified set of emerging-market and developing-country currencies.” This unit would then “represent claims on a more diversified economy”. Resulting in an increasing instability, given that while for some countries the shocks are positive, for others they are negative. The second would be having the World Bank and other international financial institutions issuing debt denominated in the EM index. As already mentioned above, “the experience of countries escaping original sin has been led not by residents but by foreigners issuing in exotic currencies, the international financial institutions in particular” (EICHENGREEN; HAUSSMAN; PANIZZA, 2002). For this reason, the authors argue that “the World Bank and other international financial institutions should start issuing debt in the index” and their AAA rating would make them reach institutional investors. The third would be having the G-10 countries issuing debt denominated in the index. If the first 2 steps succeed, then the high-grade non-residents would play the role of developing the market. At this point, the governments of the countries that issue the five major currencies could play a role (U.S., Euroland, Japan, the UK and Switzerland). The fourth and last step would be further developing the EM index market. Such market would require the participation of institutional investors and mutual funds creating products that would add credit risk to the index.

4.3 Monetary cooperation (North-South and South-South cooperation) Another alternative being debated in the literature is monetary cooperation. As explained in Panizza (2006), a monetary cooperation could be described as a “situation in which a set of countries follow similar monetary policies and hence do not allow large swings of their bilateral exchange reserves”, “fix their exchange reserves” or “adopt a single currency”. According to Panizza, there would be two

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 152

different options of monetary cooperation: the first would be the North-South- Cooperation (NSC henceforth) and, in this case a would be integrated with a ; the second would be the South-South- Cooperation (SSC henceforth), between two developing countries. However, as stated by Fritz and Metzger (2006), an NSC with a “bilateral entry to the US dollar or the does not seem feasible” for the developing (South) countries. Kregel (2006) highlights one good example of NSC, the ‘Chiang Mai Initiative’, launched by the ASEAN+3 in 2000 as an expansion of the ASEAN Swap arrangement. But for the Latin American countries, the NSC keeps being less likely to happen, especially considering that the interaction that the Asian countries have with Japan and other huge players as China and Korea does not have a counterpart in Latin America. This posed the authors to argue that the SSC would be the only viable alternative. The SSC could result, according to Fritz and Metzger (2006) in “a collective protection against domestic pressures through a regional exchange rate arrangement”. However, according to Panizza (2006), the viability and effectiveness of this type of arrangement would depend on the size of the country, as already mentioned in Section 2.3, being the only variable robustly related to ‘original sin’. As a result, this would imply that “international investors might be interested in holding assets denominated in a currency issued by the monetary union that encompasses large and well-diversified economies”, that’s why monetary unions among larger countries might have a bigger chance of being part of the international portfolio. Focusing on the Latin American perspective, Kregel (2006) stresses the fact that the Mercosur could be one example of regional coordination in order to reduce dependence on external borrowing, and thus, in our case, the ‘original sin’. Nevertheless, the agreement never crossed the level of setting a common external tariff and, as reminded by the author, has not reached any “means of monetary cooperation or coordination, although exchange rate volatility between the two major member states has been a continued source of friction since its creation in 1991” (Kregel, 2006, :46). Touching upon these two major economies of the South American agreement, Carvalho (2006) comments the proposal of setting a monetary union

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 153

between Argentina and Brazil12, that has been first raised by the former Argentinean president Carlos Menem in 1999. According to Carvalho (2006), a scheme with fixed exchange rates (or some kind of monetary coordination) could contribute to reduce price uncertainty and stimulate trade. The author argues in favour of “a stronger effort at macroeconomic policy coordination” together with the adoption of “common protective devices” (i.e. capital controls) in order to minimize external vulnerability related to the capital flows and to strengthen both countries’ economy. However, going to the direction of a common currency would be still an uncertain path. If we consider the Eurozone experience and all the political and economic constraints involving such an ambitious project and we compare with the little coordination reached so far by the Mercosur, the currency union becomes an even further option.

4.4 Assessing the alternatives in the current political and economic scenarios The international initiative would be very effective in terms of ‘redemption’ of the ‘original sin’, being consistent with the findings in the literature. As stated by Eichengreen, Hausmann and Panizza (2002), the international initiative would incorporate a large group of countries representing over 90% of the population and the GDP of the developing world through the new EM index. Since the size is the only variable robustly correlated with the ‘original sin’ (PANIZZA, 2006), this broad approach would be one important strategy to be considered. Moreover, the EM index would meet the existing demand of non-residents for bonds emitted in exotic currencies. The South-South cooperation, especially the one involving Argentina and Brazil, could also fit the argument of country size and somehow the demand of non-residents. Nonetheless, the current state of affairs leads us to doubt the feasibility of the alternatives. In the international scenario, we can highlight the weak economic recovery of the developed countries and the political turmoil involving the elections of nationalist conservative parties in the political sphere that push even further away from any project of integration and coordination. The international

12 The monetary union between Argentina and Brazil has been supported, in the Brazilian case, by part of the conservative economists as a matter of imposing fiscal and monetary constraints (parallel to the ones of the Maastricht Treaty). Cardim de Carvalho highlights that, in this case, importance was given to the independence of the Central Bank and to the imposition of limits to fiscal deficits.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 154

initiative, on the one hand, would require the commitment of international financial institutions, of the G-10 and so on, what is hardly achievable in the current context. The SSC in the Mercosur, on the other hand, would require a more bidding group. At the moment, the integration process in the block suffers even a step back, with the temporary exclusion of Venezuela. Furthermore, the big players of the block, Brazil and Argentina (that could also set some kind of coordination among themselves) face turbulence, both challenged by high inflation and rather low growth or even deflation. In the Brazilian case, a complex political and economic crisis which involved the impeachment of the former President Dilma Rousseff gave rise for the extreme-right Jair Bolsonaro’s election, who promises a great distance from the Latin American block. As for Argentina, recently the country has been suffering from the deterioration of Macri’s government and reputation alongside the turbulent economic scenario. Because of the current status of both countries, it makes the cooperation dream away from becoming true.

5. Conclusion In this paper, we have discussed ‘original sin’ in Latin America firstly from a theoretical perspective and then by measuring the phenomenon with the most common indicator (OSIN3). In the theoretical section, we described the two dimensions of ‘original sin’ - domestic and international - and we have opted to focus on the latter. From the empirical analysis conducted on the selected Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico and Venezuela), we could verify, through the estimation of the index OSIN3, how countries were affected by ‘original sin’ in the last 15 years. We have noticed possible signs of ‘redemption’ for some countries, while others had no signs of improvement whatsoever (Argentina for example). However, the situation is reversed, indicating that it was not ‘redemption’, but countries pursued abstaining themselves in the ICM while building up reserves in a favourable economic scenario. We reaffirm the dependency of the countries analysed to debts in foreign currencies by looking at the composition of debts securities issued. Since international causes play a key role in Latin America, only measures that aim to modify the international monetary and financial system towards better coordination could be credible alternatives. The international initiative would be very effective in terms of ‘redemption’, being consistent with the findings in the

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 155

literature, but its feasibility can be questioned; it requires indeed the commitment of international financial institutions, of the G-10 and so on. Other approaches such as NSC and SSC (more specifically within the Mercosur or even a monetary arrangement between Argentina and Brazil) ought to be considered. However, they are also subjected to feasibility constraints, especially regarding the current state of affairs, both internationally, within the Mercosur and domestically. Ultimately, a profound reform of the international monetary system seems to be needed. In this regard, the role played recently by the BRICS with the creation of the New Development Bank could be seen as a step forward in such a direction, as an alternative to the post-Bretton Woods institutions.

References BERGSTEN, C. F. Currency Wars and the International Economic Order, Lecture delivered at the Stockholm School of Economics, Stockholm, Sweden, 2014.

BIBOW, J. The International Monetary (Non-)Order and the “Global Capital Flows Paradox”, Levy Economics Institute of Bard College Working Paper No. 531, 2008.

BORDO, M. D. Sudden stops, financial crises, and original sin in emerging countries: Deja vu?. National Bureau of Economic Research, No. w12393, 2006.

CAMPANELLA, M. The internationalization of the renminbi and the rise of a multipolar currency system. Journal of Self-Governance and Management Economics, v.2, n. 3, p. 72-93, 2014.

CARVALHO, F. J. C. Perspectives for a Monetary Union between Argentina and Brazil. In: FRITZ, B.; METZGER, M. (Ed.) New Issues in Regional Monetary Coordination: Understanding North-South and South-South Arrangements, Basingstoke England: Palgrave Macmillan, 2006.

EICHENGREEN, B.; HAUSMANN, R. Exchange rates and financial fragility. National Bureau of Economic Research, No. w7418, 1999.

EICHENGREEN, B.; HAUSMANN, R. The Road to Redemption. In: EICHENGREEN, B.; HAUSMANN, R. Debt Denomination and Financial Instability in Emerging-Market Economies. Chicago: University of Chicago Press, 2003.

EICHENGREEN, B.; HAUSMANN, R.; PANIZZA, U. Original Sin: The Pain, the Mystery and the Road to Redemption. In: Annals. Conference on Currency and

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 156

Maturity Matchmaking: Redeeming Debt from Original Sin, Inter-American Development Bank, 2002.

EICHENGREEN, B.; HAUSMANN, R.; PANIZZA, U. The Pain of Original Sin. In: EICHENGREEN, B.; HAUSMANN, R. Debt Denomination and Financial Instability in Emerging-Market Economies. Chicago: University of Chicago Press, 2003a.

EICHENGREEN, B.; HAUSMANN, R.; PANIZZA, U. The Mystery of Original Sin. In: EICHENGREEN, B.; HAUSMANN, R. Debt Denomination and Financial Instability in Emerging-Market Economies. Chicago: University of Chicago Press, 2003b.

EICHENGREEN, B.; HAUSMANN, R.; PANIZZA, U. Currency Mismatches, , and Original Sin: Why They Are Not the Same and Why It Matters. In: EDWARDS, S. (Ed.) Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences. Chicago: University of Chicago Press, p. 121-169, 2007.

FRITZ, B. Macroeconomic Policy Regime: a heuristic approach to grasping national policy space within global asymmetries. In: TRUGER, A.; HEIN, E.; HEINE, M.; HOFFER, F. (Ed.). Monetary , labour markets and development. Marburg, Metropolis: Festschrift for Hansjörg Herr, 2016. p. 73-84.

FRITZ, B.; MÜHLICH, L. Regional monetary integration among developing countries: new opportunities for macroeconomic stability beyond the theory of optimum currency areas?. In: Annals. 10th Workshop of the Research Network “Alternative Conceptions of Macroeconomic Policies under the Conditions of Unemployment, Globalisation and High Public Debt”, October 13th, 2006.

FRITZ, B.; METZGER, M. (Eds.) New Issues in Regional Monetary Coordination: Understanding North-South and South-South Arrangements. Basingstoke England: Palgrave Macmillan, 2006.

GOURINCHAS, P.; JEANNE, O. Capital flows to developing countries: The allocation puzzle. The Review of Economic Studies, v. 80, n. 4, p. 1484-1515, 2013.

HAUSMANN, R. Currencies: Should there be five or one hundred and five. Foreign Policy, n. 116, p. 65-79, 1999.

HAUSMANN, R.; PANIZZA, U. On the determinants of Original Sin: an empirical investigation. Journal of International Money and Finance, v. 22, n. 7, p. 957-990, 2003.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 157

HAUSMANN, R.; PANIZZA, U. Redemption or abstinence? Original sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium. Journal of Globalization and Development, v. 2, n. 1, 2011.

KREGEL, J. Chances and Limits of a South-South Monetary Coordination. In: FRITZ, B.; METZGER, M. (Eds.) New Issues in Regional Monetary Coordination: Understanding North-South and South-South Arrangements. Basingstoke England: Palgrave Macmillan, 2006.

KRUGER, M. What to Expect When China Liberalizes Its Capital Account. Bank of Canada, Ottawa, Ontario, Canada, 2016.

LIBERATO, D.; HOLLAND M.; VIEIRA, F. Pecado Original” e Volatilidade da Taxa de Câmbio: novas evidências empíricas. In: Anais. ANPEC, 40., 2012. Proceedings of the 40th Brazilian Economics Meeting. Niterói: Anpec, 2012.

LUCAS, R. E. Why doesn't capital flow from rich to poor countries? The American Economic Review, v. 80, n. 2, p. 92-96, 1990.

METZGER, M. Of Magic Dragons and Strange Beasts: A Reassessment of the Latin American and Asian Crises. The South African Journal of Economics, v. 69, n. 2, p. 191-217, 2001.

NIFO, A.; VECCHIONE, G. Measuring Institutional Quality in Italy. Rivista Economica del Mezzogiorno, v. 1, n. 2, p. 157-182, 2015.

OCAMPO, J. A. The impact of the global financial crisis on Latin America. Cepal Review, v. 1, n. 97, p. 9-32, 2009.

PANIZZA, U. ‘Original Sin’ and Monetary Cooperation. FRITZ, B.; METZGER, M. (Eds.) New Issues in Regional Monetary Coordination: Understanding North- South and South-South Arrangements. Basingstoke England: Palgrave Macmillan, 2006.

PRATES, D. Crises financeiras dos países “emergentes”: uma interpretação heterodoxa. Instituto de Economia, UNICAMP, 2002.

REINHART, C. M.; ROGOFF, K. This time is different: eight centuries of financial folly. Princeton University Press, 2009.

SEN, A. The concept of development. In: CHENERY, H.; SRUNIVASAN, T. Handbook of Development Economics, v. 1, 1988. p. 9-26.

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 158

Appendix

Table 1 – Debt Securities issued by Argentina and debt securities issued in Argentinian Pesos from 2000-2015 SECURITIES ISSUED BY TOTAL SECURITIES ISSUED IN ARGENTINA ARGENTINIAN PESOS Measure C:Gross I:Amounts Measure C:Gross I:Amounts issues outstanding issues outstanding 2000-Q4 448 87,053 2000-Q4 102 2,349 2001-Q4 1,391 90,161 2001-Q4 0 2,528 2002-Q4 155 91,233 2002-Q4 0 761 2003-Q4 0 94,799 2003-Q4 0 859 2004-Q4 329 93,175 2004-Q4 0 760 2005-Q4 440 57,743 2005-Q4 0 545 2006-Q4 1,085 60,769 2006-Q4 1 792 2007-Q4 695 63,371 2007-Q4 0 924 2008-Q4 15 51,313 2008-Q4 0 704 2009-Q4 500 50,527 2009-Q4 0 745 2010-Q4 1,906 51,041 2010-Q4 0 623 2011-Q4 85 51,136 2011-Q4 44 478 2012-Q4 0 50,774 2012-Q4 0 313 2013-Q4 675 52,538 2013-Q4 0 199 2014-Q4 121 50,145 2014-Q4 0 129 2015-Q4 310 49,572 2015-Q4 95 306

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 159

Table 2 – Argentina’s debt securities decomposed into Euro and U.S dollar from 2000-2015 EURO US DOLLAR Composition C:Gross I:Amounts C:Gross I:Amounts US Measure EURO OTHER issues outstanding issues outstanding DOLLARS 2000-Q4 196 26,113 250 54,538 30% 63% 7% 2001-Q4 30 23,646 1361 61,018 26% 68% 6% 2002-Q4 0 27,678 155 59,225 30% 65% 5% 2003-Q4 0 32,894 0 57,057 35% 60% 5% 2004-Q4 14 34,934 315 53,323 37% 57% 5% 2005-Q4 0 23,482 440 33,198 41% 57% 2% 2006-Q4 0 25,508 1085 34,205 42% 56% 2% 2007-Q4 0 27,498 695 34,888 43% 55% 2% 2008-Q4 0 23,792 15 26,736 46% 52% 2% 2009-Q4 0 23,979 500 25,664 47% 51% 2% 2010-Q4 0 21,760 1896 28,343 43% 56% 2% 2011-Q4 0 20,642 85 29,354 40% 57% 2% 2012-Q4 0 21,049 0 28,598 41% 56% 2% 2013-Q4 0 21,823 675 29,691 42% 57% 2% 2014-Q4 0 19,212 121 30,031 38% 60% 2% 2015-Q4 0 17,228 310 31,408 35% 63% 2% MEAN 39% 58% 3%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 160

Table 3 – Argentina’s debt securities divided by domestic and foreign currency from 2000-2015 (Total and percentage) A:All D:Domestic F:Foreign Domestic Foreign Measure currencies currency currency % % 2000-Q4 87053 2012 85041 2% 98% 2001-Q4 90161 2153 88007 2% 98% 2002-Q4 91233 648 90585 1% 99% 2003-Q4 94799 730 94069 1% 99% 2004-Q4 93175 633 92542 1% 99% 2005-Q4 57743 444 57299 1% 99% 2006-Q4 60769 440 60329 1% 99% 2007-Q4 63371 407 62964 1% 99% 2008-Q4 51313 210 51102 0% 100% 2009-Q4 50527 297 50231 1% 99% 2010-Q4 51041 293 50747 1% 99% 2011-Q4 51136 272 50865 1% 99% 2012-Q4 50774 157 50617 0% 100% 2013-Q4 52538 120 52418 0% 100% 2014-Q4 50145 423 49721 1% 99% 2015-Q4 49572 543 49029 1% 99%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 161

Table 4 – Debt Securities issued by Brazil and debt securities issued in Brazilian Real from 2000-2015 SECURITIES ISSUED BY BRAZIL TOTAL SECURITIES ISSUED IN REAL Measure C:Gross I:Amounts Measure C:Gross I:Amounts issues outstanding issues outstanding 2000-Q4 2,558 87,253 2000-Q4 0 15 2001-Q4 2,726 82,388 2001-Q4 0 0 2002-Q4 2,549 89,823 2002-Q4 0 0 2003-Q4 6,647 105,554 2003-Q4 0 0 2004-Q4 3,254 106,638 2004-Q4 269 414 2005-Q4 5,667 108,772 2005-Q4 1,139 5,768 2006-Q4 9,028 111,735 2006-Q4 2,144 10,954 2007-Q4 5,894 120,796 2007-Q4 1,537 24,398 2008-Q4 2,017 119,463 2008-Q4 515 17,649 2009-Q4 15,327 141,774 2009-Q4 2,053 24,586 2010-Q4 10,824 175,215 2010-Q4 5,715 35,390 2011-Q4 12,065 207,374 2011-Q4 1,605 46,611 2012-Q4 21,910 263,731 2012-Q4 3,557 47,900 2013-Q4 15,265 294,334 2013-Q4 2,206 48,033 2014-Q4 8,353 321,362 2014-Q4 1,860 45,091 2015-Q4 2,366 293,158 2015-Q4 2,475 30,050

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 162

Table 5 – Brazil’s debt securities decomposed into Euro and U.S dollar from 2000-2015 EURO US DOLLARS C:Gross I:Amounts C:Gross I:Amounts US Measure EURO OTHER issues outstanding issues outstanding DOLLARS 2000-Q4 735 11,031 1183 72,974 13% 84% 4% 2001-Q4 183 11,918 2495 65,195 14% 79% 6% 2002-Q4 1,079 16,340 1470 67,650 18% 75% 6% 2003-Q4 19 17,816 6399 83,753 17% 79% 4% 2004-Q4 2 19,306 3110 83,527 18% 78% 4% 2005-Q4 132 15,125 5006 87,356 14% 80% 6% 2006-Q4 4 15,228 8317 88,257 14% 79% 7% 2007-Q4 18 10,280 5483 95,481 9% 79% 12% 2008-Q4 40 9,297 1937 99,353 8% 83% 9% 2009-Q4 99 7,686 14996 120,353 5% 85% 10% 2010-Q4 1,018 9,445 8261 151,304 5% 86% 8% 2011-Q4 2,523 10,932 8435 179,272 5% 86% 8% 2012-Q4 2,712 13,544 17920 231,930 5% 88% 7% 2013-Q4 376 16,416 14569 260,786 6% 89% 6% 2014-Q4 163 21,011 7787 282,930 7% 88% 5% 2015-Q4 58 17,606 1947 262,387 6% 90% 4% MEAN 10% 83% 7%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 163

Table 6 – Brazil’s debt securities divided by domestic and foreign currency from 2000-2015 (Total and percentage) A:All D:Domestic F:Foreign Domestic Foreign Measure currencies currency currency % % 2000-Q4 87253 1196 86057 1% 99% 2001-Q4 82388 1164 81224 1% 99% 2002-Q4 89823 1535 88288 2% 98% 2003-Q4 105554 2077 103477 2% 98% 2004-Q4 106638 2454 104184 2% 98% 2005-Q4 108772 3554 105218 3% 97% 2006-Q4 111735 5476 106259 5% 95% 2007-Q4 120796 10125 110671 8% 92% 2008-Q4 119463 8085 111378 7% 93% 2009-Q4 141774 10818 130956 8% 92% 2010-Q4 175215 11134 164080 6% 94% 2011-Q4 207374 12943 194431 6% 94% 2012-Q4 263731 16527 247204 6% 94% 2013-Q4 294334 15498 278836 5% 95% 2014-Q4 321362 23758 297604 7% 93% 2015-Q4 293158 19433 273725 7% 93% MEAN 5% 95%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 164

Table 7 – Debt Securities issued by Chile and debt securities issued in Chilean Pesos from 2000-2015 TOTAL SECURITIES ISSUED IN SECURITIES ISSUED BY CHILE CHILEAN PESOS Measure C:Gross I:Amounts Measure C:Gross I:Amounts issues outstanding issues outstanding 2000-Q4 0 5,313 2001-Q1 142 370 2001-Q4 650 6,989 2002-Q1 0 330 2002-Q4 825 9,026 2003-Q1 0 301 2003-Q4 500 9,948 2004-Q1 0 91 2004-Q4 500 10,660 2005-Q1 0 96 2005-Q4 0 10,707 2006-Q1 8 79 2006-Q4 500 10,790 2007-Q1 0 245 2007-Q4 65 10,322 2008-Q1 54 581 2008-Q4 0 10,024 2009-Q1 37 517 2009-Q4 1,051 11,190 2010-Q1 0 464 2010-Q4 1,500 15,843 2011-Q1 31 1,529 2011-Q4 1,650 20,161 2012-Q1 188 2,521 2012-Q4 3,755 25,861 2013-Q1 595 2,631 2013-Q4 4,244 35,553 2014-Q1 212 2,434 2014-Q4 4,909 45,977 2015-Q1 52 2,012 2015-Q4 180 52,859 2016-Q1 5 1,792

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 165

Table 8 – Chile’s debt securities decomposed into Euro and U.S dollar from 2000-2015 EURO US DOLLARS Composition C:Gross I:Amounts C:Gross I:Amounts US Measure EURO OTHER issues outstanding issues outstanding DOLLARS 2000-Q4 0 288 0 5,025 5% 95% 0% 2001-Q4 0 273 650 6,716 4% 96% 0% 2002-Q4 0 524 825 8,502 6% 94% 0% 2003-Q4 0 631 500 9,317 6% 94% 0% 2004-Q4 0 409 500 10,252 4% 96% 0% 2005-Q4 0 0 0 10,707 0% 100% 0% 2006-Q4 0 0 500 10,790 0% 100% 0% 2007-Q4 0 0 65 10,322 0% 100% 0% 2008-Q4 0 0 0 9,900 0% 99% 1% 2009-Q4 0 0 1000 11,001 0% 98% 2% 2010-Q4 0 0 1500 14,961 0% 94% 6% 2011-Q4 0 0 1650 18,984 0% 94% 6% 2012-Q4 0 0 3500 24,394 0% 94% 6% 2013-Q4 0 0 3425 31,962 0% 90% 10% 2014-Q4 995 1,700 3615 40,146 4% 87% 9% 2015-Q4 51 3,146 50 45,194 6% 85% 9% MEAN 2% 95% 3%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 166

Table 9 – Chile’s debt securities divided by domestic and foreign currency from 2000-2015 (Total and percentage) A:All D:Domestic F:Foreign Domestic Foreign Measure currencies currency currency % % Quarter 2000-Q4 5313 0 5313 0% 100% 2001-Q4 6989 0 6989 0% 100% 2002-Q4 9026 0 9026 0% 100% 2003-Q4 9948 0 9948 0% 100% 2004-Q4 10660 0 10660 0% 100% 2005-Q4 10707 0 10707 0% 100% 2006-Q4 10790 0 10790 0% 100% 2007-Q4 10322 0 10322 0% 100% 2008-Q4 10024 0 10024 0% 100% 2009-Q4 11190 0 11190 0% 100% 2010-Q4 15843 581 15262 4% 96% 2011-Q4 20161 833 19328 4% 96% 2012-Q4 25861 908 24953 4% 96% 2013-Q4 35553 1010 34543 3% 97% 2014-Q4 45977 1107 44870 2% 98% 2015-Q4 52859 984 51875 1% 99%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 167

Table 10 – Debt Securities issued by Colombia and debt securities issued in Colombian Pesos from 2000-2015 SECURITIES ISSUED BY TOTAL SECURITIES ISSUED IN COLOMBIA COLOMBIAN PESOS Measure C:Gross I:Amounts Measure C:Gross I:Amounts issues outstanding issues outstanding 2000-Q4 348 8,692 2000-Q4 1 2001-Q4 1,000 11,839 2001-Q4 1 2002-Q4 500 12,243 2002-Q4 0 79 2003-Q4 0 12,642 2003-Q4 0 82 2004-Q4 544 13,367 2004-Q4 374 490 2005-Q4 843 13,790 2005-Q4 320 1,297 2006-Q4 468 15,665 2006-Q4 0 1,994 2007-Q4 1,460 18,821 2007-Q4 214 3,661 2008-Q4 0 17,918 2008-Q4 150 3,604 2009-Q4 1,903 23,155 2009-Q4 47 4,186 2010-Q4 21 24,434 2010-Q4 287 5,135 2011-Q4 1,512 28,969 2011-Q4 37 6,507 2012-Q4 33 33,408 2012-Q4 59 8,038 2013-Q4 1,758 41,262 2013-Q4 91 8,251 2014-Q4 1,076 46,711 2014-Q4 182 7,813 2015-Q4 30 50,845 2015-Q4 138 4,889

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 168

Table 11 – Colombia’s debt securities decomposed into Euro and U.S dollar from 2000-2015 EURO US DOLLARS Composition C:Gross I:Amounts C:Gross I:Amounts US Measure EURO OTHER issues outstanding issues outstanding DOLLARS 2000-Q4 348 1,254 0 6,819 14% 78% 7% 2001-Q4 0 2,165 1000 9,059 18% 77% 5% 2002-Q4 0 2,360 500 9,305 19% 76% 5% 2003-Q4 0 2,273 0 10,003 18% 79% 3% 2004-Q4 0 2,452 170 10,135 18% 76% 6% 2005-Q4 0 1,416 400 10,884 10% 79% 11% 2006-Q4 0 1,580 468 11,979 10% 76% 13% 2007-Q4 0 1,767 1460 13,472 9% 72% 19% 2008-Q4 0 557 0 14,233 3% 79% 17% 2009-Q4 0 576 1400 18,748 2% 81% 17% 2010-Q4 0 534 21 19,276 2% 79% 19% 2011-Q4 0 0 1512 23,571 0% 81% 19% 2012-Q4 0 0 33 27,356 0% 82% 18% 2013-Q4 0 0 1758 35,461 0% 86% 14% 2014-Q4 0 0 1076 41,221 0% 88% 12% 2015-Q4 0 0 30 47,403 0% 93% 7% MEAN 8% 80% 12%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 169

Table 12 – Colombia’s debt securities divided by domestic and foreign currency from 2000-2015 (Total and percentage) A:All D:Domestic F:Foreign Domestic Foreign Measure currencies currency currency % % 2000-Q4 8692 8692 0% 100% 2001-Q4 11839 11839 0% 100% 2002-Q4 12243 12243 0% 100% 2003-Q4 12642 12642 0% 100% 2004-Q4 13367 396 12972 3% 97% 2005-Q4 13790 1127 12663 8% 92% 2006-Q4 15665 1720 13945 11% 89% 2007-Q4 18821 3185 15636 17% 83% 2008-Q4 17918 2880 15038 16% 84% 2009-Q4 23155 3097 20058 13% 87% 2010-Q4 24434 3795 20639 16% 84% 2011-Q4 28969 4530 24439 16% 84% 2012-Q4 33408 5532 27876 17% 83% 2013-Q4 41262 5374 35889 13% 87% 2014-Q4 46711 5117 41594 11% 89% 2015-Q4 50845 3068 47777 9% 91%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 170

Table 13 – Debt Securities issued by Mexico and debt securities issued in Mexican Pesos from 2000-2015 TOTAL SECURITIES ISSUED IN SECURITIES ISSUED BY MEXICO MEXICAN PESOS C:Gross I:Amounts C:Gross I:Amounts Measure Measure issues outstanding issues outstanding 2000-Q4 2,393 85,533 2000-Q4 0 220 2001-Q4 2,142 81,030 2001-Q4 0 230 2002-Q4 2,263 80,591 2002-Q4 195 289 2003-Q4 3,448 71,899 2003-Q4 0 178 2004-Q4 2,632 79,623 2004-Q4 2 702 2005-Q4 1,899 82,648 2005-Q4 1,875 3,870 2006-Q4 3,896 84,724 2006-Q4 3,609 10,927 2007-Q4 4,048 88,886 2007-Q4 2,345 20,949 2008-Q4 2,803 82,274 2008-Q4 549 19,024 2009-Q4 9,603 93,011 2009-Q4 771 16,489 2010-Q4 3,899 102,203 2010-Q4 596 19,465 2011-Q4 5,772 119,193 2011-Q4 1,917 19,622 2012-Q4 8,922 144,940 2012-Q4 3,327 23,428 2013-Q4 13,829 173,263 2013-Q4 1,620 32,692 2014-Q4 9,385 192,850 2014-Q4 440 30,862 2015-Q4 4,716 209,041 2015-Q4 266 26,822

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 171

Table 14 – Mexico’s debt securities decomposed into Euro and U.S dollar from 2000-2015 EURO US DOLLARS Composition C:Gross I:Amounts I:Amounts US Measure C:Gross issues EURO OTHER issues outstanding outstanding DOLLARS 2000-Q4 7 10,495 2386 69,113 12% 81% 7% 2001-Q4 9 9,694 2134 66,042 12% 82% 7% 2002-Q4 0 10,727 2068 66,242 13% 82% 4% 2003-Q4 0 11,380 2936 56,812 16% 79% 5% 2004-Q4 971 12,265 1662 63,771 15% 80% 5% 2005-Q4 54 12,757 1380 66,634 15% 81% 4% 2006-Q4 0 13,455 3158 67,567 16% 80% 4% 2007-Q4 70 15,824 3906 67,953 18% 76% 6% 2008-Q4 79 14,338 2597 63,504 17% 77% 5% 2009-Q4 2,070 16,049 5202 69,258 17% 74% 8% 2010-Q4 88 14,229 1962 75,450 14% 74% 12% 2011-Q4 1,389 14,989 2174 89,672 13% 75% 12% 2012-Q4 0 16,653 6993 108,883 11% 75% 13% 2013-Q4 3,522 23,892 9662 126,278 14% 73% 13% 2014-Q4 37 23,934 9346 144,295 12% 75% 13% 2015-Q4 11 32,238 4115 152,605 15% 73% 12% MEAN 15% 77% 8%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 172

Table 15 – Mexico’s debt securities divided by domestic and foreign currency from 2000-2015 (Total and percentage) A:All D:Domestic F:Foreign Domestic Foreign Measure currencies currency currency % % Quarter 2000-Q4 85533 2043 83489 2% 98% 2001-Q4 81030 2206 78824 3% 97% 2002-Q4 80591 5169 75421 6% 94% 2003-Q4 71899 6426 65472 9% 91% 2004-Q4 79623 9685 69937 12% 88% 2005-Q4 82648 11195 71453 14% 86% 2006-Q4 84724 11558 73166 14% 86% 2007-Q4 88886 13842 75045 16% 84% 2008-Q4 82274 14008 68266 17% 83% 2009-Q4 93011 13455 79556 14% 86% 2010-Q4 102203 11948 90255 12% 88% 2011-Q4 119193 12591 106602 11% 89% 2012-Q4 144940 15907 129033 11% 89% 2013-Q4 173263 18398 154865 11% 89% 2014-Q4 192850 18486 174363 10% 90% 2015-Q4 209041 21452 187589 11% 89%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 173

Table 16 – Debt Securities issued by Venezuela and debt securities issued in Bolivar Fuerte from 2000-2015 SECURITIES ISSUED BY TOTAL SECURITIES ISSUED IN VENEZUELA BOLIVAR FUERTE Measure C:Gross I:Amounts Measure C:Gross I:Amounts issues outstanding issues outstanding 2000-Q4 0 19,167 2000-Q4 0 0 2001-Q4 724 19,998 2001-Q4 0 0 2002-Q4 0 19,169 2002-Q4 0 0 2003-Q4 1,470 19,821 2003-Q4 0 0 2004-Q4 2,000 21,020 2004-Q4 0 0 2005-Q4 3,000 25,400 2005-Q4 220 220 2006-Q4 1 22,217 2006-Q4 492 977 2007-Q4 1,250 30,303 2007-Q4 786 2,250 2008-Q4 0 32,754 2008-Q4 0 2,215 2009-Q4 8,148 42,399 2009-Q4 0 2,033 2010-Q4 3,216 47,800 2010-Q4 48 530 2011-Q4 5,394 56,581 2011-Q4 0 271 2012-Q4 0 56,433 2012-Q4 0 236 2013-Q4 0 55,299 2013-Q4 0 161 2014-Q4 0 52,257 2014-Q4 0 161 2015-Q4 0 49,743 2015-Q4 0 161

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 174

Table 17 – Venezuela’s debt securities decomposed into Euro and U.S dollar from 2000-2015 EURO US DOLLARS Composition C:Gross I:Amounts C:Gross I:Amounts US Measure EURO OTHER issues outstanding issues outstanding DOLLARS 2000-Q4 0 1,046 0 18,121 5% 95% 0% 2001-Q4 224 2,049 500 17,813 10% 89% 1% 2002-Q4 0 2,438 0 16,582 13% 87% 1% 2003-Q4 0 2,091 1470 17,563 11% 89% 1% 2004-Q4 0 2,102 2000 18,746 10% 89% 1% 2005-Q4 0 2,410 3000 22,838 9% 90% 1% 2006-Q4 0 2,689 1 19,377 12% 87% 1% 2007-Q4 0 3,006 1250 27,140 10% 90% 1% 2008-Q4 0 1,740 0 31,014 5% 95% 0% 2009-Q4 0 1,801 8148 40,599 4% 96% 0% 2010-Q4 0 1,670 3216 46,130 3% 97% 0% 2011-Q4 0 1,294 5394 55,287 2% 98% 0% 2012-Q4 0 1,319 0 55,113 2% 98% 0% 2013-Q4 0 1,379 0 53,919 2% 98% 0% 2014-Q4 0 1,214 0 51,043 2% 98% 0% 2015-Q4 0 0 0 49,743 0% 100% 0% MEAN 6% 93% 0%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019 Gallo, Góes e Moraes 175

Table 18 – Venezuela’s debt securities divided by domestic and foreign currency from 2000-2015 (Total and percentage) A:All D:Domestic F:Foreign Domestic Foreign Measure currencies currency currency % % 2000-Q4 19167 500 18667 3% 97% 2001-Q4 19998 500 19498 3% 97% 2002-Q4 19169 500 18669 3% 97% 2003-Q4 19821 0 19821 0% 100% 2004-Q4 21020 0 21020 0% 100% 2005-Q4 25400 0 25400 0% 100% 2006-Q4 22217 0 22217 0% 100% 2007-Q4 30303 0 30303 0% 100% 2008-Q4 32754 0 32754 0% 100% 2009-Q4 42399 0 42399 0% 100% 2010-Q4 47800 300 47500 1% 99% 2011-Q4 56581 300 56281 1% 99% 2012-Q4 56433 300 56133 1% 99% 2013-Q4 55299 300 54999 1% 99% 2014-Q4 52257 650 51607 1% 99% 2015-Q4 49743 650 49093 1% 99%

Revista de Economia, v. 40, n. 72, p. 134-175, 2019